The Gas War Between US and Canada

03/30/2016

The US and Canada usually get together very well. The countries have strong trade relationship worth more than $ 2 billion a day; the US is the largest foreign investor in Canada, and Canada - the third in the United States.

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Yet, such productive partnerships can be broken due to an undeclared gas war.

In 2005, when the US began using the technology of hydraulic fracturing in the Barnett field in Texas, a pipeline from Canada was accounting for 17% of natural gas consumption in the United States. However, when production in the United States increased by about 50% by the end of 2015, the share of Canada in ensuring the demand has fallen below 10%.

Production growth in the United States is just one of a number of issues Canadian companies are facing. Still, the development of competition is not pleasing to anyone since the prices are going down.

As a result, current price for natural gas is even lower than cost for the majority of new deposits. In some regions, production declined further in 2015, but remains stable in Alberta and British Columbia.

Moreover, it is expected to grow by nearly 2.5% to 15.3 billion cubic feet per day in 2016. The United States, from their side, also have similar manufacturers that increase the production; volumes there are much larger.

As a result, cheap US gas is increasingly replacing shipments from Canada. Since 2005, the volume of supplies from the west of the country has fallen by more than 50%, while US companies have begun to deliver twice as much to the domestic market. Over the next decade the figures are likely to change again twice.

Projects Atlantic Bridge and NEXUS will be launched in 2017. They are supposed to transfer 1.6 billion cubic feet per day from the US mining regions to high demand markets, including Chicago, Ohio, New England, Ontario and Atlantic Canada. On the other hand, a gas pipeline, which will supply the east of Canada, will also emerge pretty soon, but this is unlikely to compensate for the loss of markets in the United States.

At the same time, the fact that the Government of Canada recently re-postponed its decision on Pacific Northwest LNG’s draft, gives no hope that Canada will become an exporter of LNG.

Perhaps, a Gas War is not the right term, but the competition is getting tougher, and Canada is losing in this competition now, while the US will remain a net importer of Canadian gas until at least 2040.